Why Control4 Shares Could Still Double

Control4 Corp. (CTRL) surged after the company’s fourth-quarter earnings report. This is a home automation player with wider ambitions than just your new home. While the stock gained visibility after Google’s $ 3.2 billion acquisition of Nest Labs, this is also one of our own picks of nine stocks that could double in 2014.

The 24/7 Wall St. take: Control4 could still double, or more, if things play out properly. What is different here from most of our picks is that Control4 is a recent initial public offering from the IPO class of 2013.

The company’s earnings were $ 0.14 per share, on a sales gain of 17% to $ 35.8 million. Its CEO signaled that the next-generation wireless and panel lighting solutions are being well received, and guidance for the current quarter was put at break-even or so on earnings and $ 30 million to $ 32 million in revenue. That is in line with the estimates of -$ 0.01 in earnings per share and $ 31.3 million in revenue.

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One analyst has upgrade its target on the stock. Canaccord Genuity said that record revenue shows continued strength in the home automation macro theme. The firm raised its price target to $ 25 from $ 23 in the call. The consensus price target is up around $ 26 now, but Imperial Capital already has a $ 30 price target.

One driving force behind additional success is that Toll Brothers Inc. (TOL) recently announced that Control4 was selected to offer new homebuyers an option for smart automation technology. This is likely not the last of the homebuilder announcements. Again, Control4 has other ambitions than just new homes — lighting and security are just a part of the mix. The company wants to bring new automation and features to businesses, hotels, bars and restaurants, and even fitness facilities.

When we listed Control4 as a potential double, the stock was listed around $ 23, and the market sell-off proceeded to drag shares down close to $ 20. The post-earnings reaction had shares up 12% to $ 22.60 again, and this stock could find itself considerably higher later on in 2014 and into 2015 as home automation and business expansion in this field becomes more mainstream.

There are still some competing interests to worry about. Google Inc. (GOOG) is a formidable competitor in anything it wants to compete in. Paying $ 3.2 billion in cash to Nest Labs is a signal that it will compete very hard for home automation. Still, Control4 looks to be way ahead of Nest in its offering capabilities. In the aftermath of the Google interest, Control4 shares rose from just above $ 18 up to a high of $ 32.50 before coming back to earth.

Security companies like ADT and others are getting more and more into home automation. Fortunately, that is generally along the security, audio and video lines in general.

Where this story gets interesting is, with a market cap of just over $ 500 million, the consensus growth expectation out to 2015 is for earnings per share growth of 70% to $ 0.72 per share and revenue growth of 18% to $ 177.5 million. If a few more things come into the mix, Control4 shares could find that growth to be much higher.

If you want to think about 2015 valuations, the value today with shares close to $ 23 again is about 31 times earnings and less than three times sales. Please note: We do not use valuations two years on recent IPOs, but some investors do for growth prospect screens.

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This is no slam dunk, but it has very high possibilities. Research and Markets recently added a report to its research list from Berg Insight. It projects that revenues from shipments of home automation systems throughout Europe and North America will grow at a compound annual growth rate of 43% in the next five years — from only $ 2.2 billion in 2012 to around $ 12.8 billion by the year 2017.

We listed four serious risk factors in our “stocks that could double” analysis. There are actually four factors to consider when it comes to risk:

  1. The stock price has already doubled once.
  2. Competition in this space will be fierce, and there may be a dependence on new construction trends.
  3. Control4 has only been public since the summer of 2013 — coming public at $ 16 per share.
  4. There are also no stock options for hedging, but that should change very soon.

Whether Control4 truly doubles its stock price is up for debate. It has already doubled once. What does not seem to be up for debate is how much opportunity there is in this space ahead. Control4 seems to be further along the line in product offerings than most of its peers, and it is not out of the realm to believe that one of the larger technology companies would want to acquire it.

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Fighting Low Stock Prices, Annaly Insiders Buy Shares

Annaly Capital Management, Inc. (NLY) is in the crazy world of mortgage-backed securities real estate investment trusts. These MBS REITs can be incredibly volatile, and they generally come with massive dividend yields to boot. Now we have seen some fresh insider buying of shares on the open market after shares have sold off.

This REIT is one which we just featured in the special report called Five Dangerous Dividends Yields Above 10%. While Annaly is a dangerous dividend, its management team is supposed to be among the best among of their peers when it comes to public MBS REITs. We have seen two key insiders buying shares, which means other employees may follow suit.

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  • Wellington Denahan, Chairman of the Board of Directors and Chief Executive Officer was shown in an SEC filing from Tuesday to have purchased some 93,000 common shares on November 8 at $ 10.68 per share. This gives a direct ownership of 1,288,081 shares plus another 850,000 or so in stock options.
  • Kevin Keyes, President, was also shown to have purchased some 100,000 common shares on November 12 at $ 10.43 per share. That takes the net holdings up to 300,000 shares.

On a side-bar note, Citigroup maintained a Neutral rating, but we heard that the price target was downgraded to $ 10 from $ 12 for the stock.

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Annaly shares closed up 1.25 at $ 10.51 on more than 24 million shares on Tuesday against a 52-week trading range of $ 10.30 to $ 16.18. Its dividend has proven to be dangerous as its direction has been a lower quarterly payment trend for about three years. That being said, investors love seeing insider buying trends as well.

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Cabela’s shares up on big 1Q earnings beat

NEW YORK (AP) — Cabela’s says strong sales of guns and ammunition helped drive its profit up 73 percent in the first quarter, surpassing expectations and briefly driving its shares to all-time highs on Thursday.

The retailer operates stores that sell gear for hunting, fishing and outdoor sports.

Consumer demand for firearms has surged in recent months on worries about the possibilities of increased regulation or bans of certain kinds of weapons in the wake of the December slayings of 20 first-graders and six adult staffers at the Sandy Hook Elementary School in Newtown, Conn.

The shooting stirred up debate over gun control. A bill to expand background checks for gun purchases was introduced in the Senate, which also fueled demand, even though the bill was voted down last week. In fact, guns and ammunitions have been tough to keep on store shelves.

Millner said Cabela’s has been able to keep up with demand better than others because it began diversifying its supplier base four years ago. But he added that supply is still tight, particularly in some categories such as 22-caliber ammunition. Demand shows no sign of slowing, he added.

“I think the honest answer is, I don’t know when it’s going to loosen up,” Millner said.

Sidney, Neb.-based Cabela’s Inc. said net income rose to $ 49.8 million, or 70 cents per share, in the January-March quarter, up from $ 28.8 million, or 40 cents per share, in the year-ago quarter. Analysts expected 59 cents per share, according to FactSet.

Revenue jumped 29 percent to $ 802.5 million from $ 623.5 million last year. Analysts expected revenue of $ 770.5 million.

The results beat Cabela’s expectations as well. In March it said it expected earnings between 57 cents to 62 cents per share.

“First quarter results exceeded our expectations on every line of the income statement,” said CEO Tommy Millner. He said revenue in the second half of March was much stronger than expected. Particularly strong were sales of guns, and bullets, along with shoes and clothing, he said.

Excluding guns and bullets, revenue in stores open at least one year rose 9 percent. During a call with analysts, Millner said that due to strong demand and tight supply of ammunition, the company is not going to report revenue in stores open at least one year that includes guns and ammunition until the demand “normalizes.”

Millner added Cabela’s stores continue to see strong new customer growth due to the high demand for guns.

“These new customers create a great opportunity for us to convert these individuals into long-term shoppers with our proven marketing and retention strategies,” he said.

Millner said he is “comfortable” with analyst estimates for the year. Analysts expect net income of $ 2.72 per share on revenue of $ 3.12 billion.

Shares rose $ 8.22, or 14.6 percent, to $ 64.44 in afternoon trading, after earlier reaching an all-time high of $ 66.24. The stock had been up 35 percent since the beginning of the year.

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Ball shares fall on 1Q earnings miss

BROOMFIELD, Colo. (AP) — Metal packaging and aerospace company Ball Corp. said Thursday its first quarter net income fell more than 18 percent, hurt by lower volume and costs related to consolidating some factories.

The company said the lower-than-expected first-quarter results make it “unlikely” it will meet its goal of 10 to 15 percent earnings-per-share growth in 2013. It shares fell about 4 percent.

Ball announced plans in August to shut down the plants in Ohio and Florida, part of a move to consolidate its beverage-can manufacturing business. In February, it said it would end production at its food and aerosol packaging plant in Elgin, Ill., by December.

CEO John A. Hayes said “solid” performance in most of Ball’s packaging business, despite lower volume, was offset by weakness in its European beverage container business.

Net income after paying preferred dividends for the January-to-March quarter fell to $ 72 million, or 47 cents per share. That compares with $ 88.3 million or 55 cents per share in the prior-year quarter. Excluding one-time items, net income was 58 cents per share, short of the 64 cents per share analysts expected, according to FactSet.

Revenue fell 2.5 percent to $ 1.99 billion from $ 2.04 billion last year. Analysts expected revenue of $ 2.1 billion.

In the Americas and Asia, metal beverage sales was down 5 percent to $ 995.2 million, as strong demand for specialty packaging in North America helped offset a double-digit 12-ounce volume decline in the quarter. In Europe, metal beverage revenue fell 3 percent to $ 402.9 million, hurt by volume declines and higher costs.

Metal food and household products packaging revenue fell 3 percent to $ 367.2 million. Revenue from aerospace and technologies clients rose 15 percent to $ 231.4 million.

Shares fell $ 1.99, or 4.2 percent, to $ 45.35 in afternoon trading. The stock has traded between $ 38.39 and $ 48.50 over the past 52 weeks.

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Netflix shares up ahead of 1Q earnings

Netflix Inc. shares jumped Monday ahead of its first-quarter earnings report that is expected after the market closes.

THE SPARK: Investor will be looking closely at this quarter as Netflix has invested heavily in rights to movies and television shows to strengthen its Internet streaming service.

The entertainment company is trying to phase out its DVDs and eliminate the costs of buying and mailing those discs. Netflix has invested in original programming such as its popular “House of Cards” series, a political thriller starring Kevin Spacey.

THE BIG PICTURE: Netflix has added on costs associated with these new efforts, but investors will be eager to see if there are indicators that the investment is worth it in the long run.

Netflix has another high-profile series coming in May, the revival of “Arrested Development,” which Fox cancelled in 2006 after three seasons. Subscriber gains from “House of Cards” could point to additional increases in the current quarter.

The company forecast in January that it would have 28.5 million to 29.5 million U.S. streaming subscribers by the end of the first quarter, but investors will be looking for that number to be at the high end of that range.

THE ANALYSIS: B. Riley analyst Eric Wold said he expects the first quarter will benefit from “House of Cards” and potentially exceed the company’s conservative guidance for the period. He also said that if the company’s profit improves sequentially, he would expect another rally in its stock price.

Wold upgraded his rating to “Neutral” from “Sell” and increased his price target on the stock to $ 165 from $ 90.

SHARE ACTION: Its shares rallied more than 6 percent Monday, adding $ 10.63 to reach $ 174, while the broader markets declined.

The company’s stock tanked in 2012 and was trading near $ 93 at the start of 2013 but jumped to over $ 196 by February on some of its improvements. The stock is up 88 percent in the year to date.

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